Week Ahead: OPEC set to extend cuts

OPEC to extend cuts

OPEC members convene in Vienna this week on Dec 5th and 6th. Markets are expecting OPEC and ally Russia to extend their oil production curbs but could be taken off guard should the cartel opt for deeper cuts. Currently the OPEC+ coalition have an agreement to reduce production by 1.2m barrels a day. Most participants think that OPEC+ will agree to extend cuts through to June, the next Vienna meeting, or even by a full year. The problem for OPEC is that while prices have recovered from the lows of Christmas 2018, there is not yet enough material uplift for all members to consider that the cuts have really worked enough to their advantage, with fiscal break-evens sitting around $80-$90 a barrel for most members.

Will the RBA cut rates?

Markets have strongly priced in odds of no change to interest rates from the Reserve Bank of Australia on Tuesday; but will the accompanying statement hold any surprises? Minutes from the November meeting showed policymakers agonised over the poor run of data and seriously considered cutting rates. It’s widely anticipated that the RBA will cut again, but the question is one of timing.

PMIs turning?

There are just a few signs that PMI surveys have hit the bottom. Can Chinese manufacturing continue to defy the pressures from the trade war with the US after October’s near three-year high? We may find out with the release of the Caixin manufacturing PMI on Monday. A month ago, the survey hit its highest in three years as factory activity expanded in defiance of the trade war.

This will be followed later the same day with the ISM report for the US manufacturing sector. Elsewhere, the UK services PMI on Wednesday will be closely watched for signs about the state of the UK economy as the election and Brexit approach.

Nonfarm payrolls

The monthly US labour market is always closely monitored, but with the Fed apparently on hold, it’s unlikely to deliver as much volatility as it has in days gone by. Whilst running at a slower rate than 2018, US labour market strength remains intact. Last month’s report showed nonfarm payrolls up 128k in October, well ahead of the 85k expected, whilst there were upward revisions to the prior two months. The August print was revised up 51k to 219k and the September number was hiked by 44k to 180k. The 3-month average at 176k against the 223k average in 2018. The revisions are really the bright spot as it indicates August and September prints were nowhere near as weak as we thought.

Bank of Canada

On Wednesday the Bank of Canada meets but is not expected to change course. Indeed the central bank is now expected to hold rates through to the end of 2020, according to a Reuters poll of economists. Markets have been eyeing a cut but governor Stephen Poloz and deputy Carolyn Wilkins have said that monetary conditions are ‘about right’ for now.

Corporate Diary

3 Dec – Salesforce Q3
4 Dec – Campbell Soup Co Q1 2020 
4 Dec – Synopsys FY 2019 
5 Dec – Dollar General Q3 
5 Dec – Kroger Q3

Key Economic Events

(All times GMT)
02 Dec – 00.30 GMT – Australia building approvals
02 Dec – 01.45 GMT – China Caixin manufacturing index
02 Dec – 09:30 GMT – UK manufacturing PMI
02 Dec – 15:00 GMT – US ISM manufacturing PMI
03 Dec – 03:30 GMT – RBA cash rate, rate statement
04 Dec – 00:30 GMT – Australia GDP
04 Dec – 09:30 GMT – UK services PMI
04 Dec – 13:15 GMT – US ADP nonfarm employment change
04 Dec – 15:00 GMT – BoC rate statement, overnight rate
04 Dec – 15:00 GMT – US ISM non-manufacturing PMI
04 Dec – 15:30 GMT – US crude oil inventories
05 Dec – All Day – OPEC meetings
06 Dec – All Day – OPEC meetings 
06 Dec – 13:30 GMT – US nonfarm payrolls, average earnings, unemployment rate